Yeah, yeah, Hi robert hers from feeding factory. And I just had this really interesting question and it was from a buyer of a business. And one of my other videos, I was talking about different kinds of buyers, right? There's first time buyers, entrepreneurial buyers, strategic buyers and we'll go into a whole host of them. But, but he said, well, what kind of buyer am I, I'm not sure. And I made the joke, I said, well, that means you're a first time buyer. And uh, he was actually a serial entrepreneur and we got a good kick out of it. But I wanted to talk about the different types of buyers for businesses. And this is important not just to buyers but to sellers because we're gonna have different campaigns for different styles of buyers. So let's talk about the first one and this is what I affectionately refer to as the first time buyer. And these are people tradition and leaving the corporate world, they've got a great education and they're saying, should I buy a business or should I buy a franchise? And sometimes franchises, uh, sometimes franchises look good to people coming from the corporate world because they have systems and processes and they sell franchises often sell on fear.
They say, well, you can't get a big account if you're not part of a national company with a national marketing campaign, you're going to get a really big leg up. And in my experience that hasn't been true and we've sold a lot of franchises in the past. But the reality is, is when someone makes a decision for you, they're not making a decision based upon the sign behind you or the name they want you. And so if you're a sign maker and they go to a national sign franchise, they're not going to say, well that sign franchises, great signs, I'll go with them, they say, you know, robert, I really trust you and I think you can make a kick butt signed for me, let's do this. And so I often like, I often recommend to my corporate kind of people making the big transition and the big jump to look at businesses that have been around for a long history that have a great track record and great sales and really good systems and processes. So that makes a transition as easy as possible, but that's really the first time buyer and so businesses like that, service businesses are great product businesses are good, but ultimately you want something where your skill set is really going to add to the business.
The second type of buyer is serial entrepreneurs, you know, like me and entrepreneur, I've been doing this for 29 years. I've been in every business I can think of and some have gone well and some haven't, but overall more have done well than have that, haven't And I usually transition every 2-5 years, you know, a lot of entrepreneurs, you know, you do your best and let's say you're going 100% a year, 150% a year and all of a sudden drop to 10 or 15% and it turns more operational for me, I'm really, when it gets operational there are people better suited to it than me, so I'm happy to sell it to them and getting something where I can be more strategic. And so as an entrepreneur or a serial entrepreneur, I like to look for strategic businesses where you can really dramatically shift the line, you know, maybe something where you're buying it fairly inexpensively and someone owns a job and doesn't own a business. I talk about the difference between that, but the bottom line is if you don't know if you own a job or a business, you just stopped showing up and if the revenue goes up, you own a business goes down young job and there's a lot of value to be created transitioning people owning jobs into owning businesses, Other strategic buyers like that.
If for example, let's say you came out of an industry that you have a lot of connections in and you can really leverage it in this next business. You know, I've seen entrepreneurs by businesses for five times earnings. So let's just say in this example, it's $1 million $200,000, 200,000 times five is $1 million dollars and that's its market cap for what it's worth and they buy it and they can pay it off and sometimes as as quickly as three or four months, you know, I thought we had a travel technology business. The guy came out of the travel technology space. He made three calls all of a sudden he's on orbitz Expedia and Travelocity and the business has grown six x in a fraction of a year. I mean amazing things can be done there and that's kind of the, the entrepreneurial or the strategic buyer. We also have the financial buyer, which is private equity or venture capital and they can be buying it for different reasons. They can buy it as a stand alone. You know, the good news is, I love dealing with private equity and venture capital groups because usually they have a set of deal criteria. They're very specific on there looking for it too.
Meat five criteria. We need to have a debt to equity of this. We need to have earnings of this. We need to be able to buy it on these terms. And if your business fits that buyer, it's usually a very quick and smooth transaction, no fundraising, no S. B. A. Loans, nothing along those lines. But sometimes when you're a seller, you wanna put yourself in the buyer's shoes. So for example, we've helped private equity groups to roll ups. Uh, and what a roll up is is you buy a company, maybe that's at the center of it. We did a roll up business in the, in the software as a service space. They would buy it for the customer set and for the software and then they buy the three major competitors and let's say they're doing a million dollars in earnings. So a million dollars in earnings. And let's say in this multiple, they're probably doing four, maybe five times that earnings. So the company with four or five million, Well if you stick those three companies together, a company doing three million might be worth 6-7. So what they bought for 12 million all of a sudden is worth 20 million. So that type of financial engineering is usually going to come from a financial buyer or private equity or venture capital group and then the final buyer is a strategic buyer and strategic buyers are usually buying for a few things right there.
They're buying gross margin Because that margin if they're quite more than 80% of a company goes directly into their financials. But sometimes they're buying to either aqua hire meaning they're trying to get the people and you know, the skill set and being able to do that. We just saw that recently with one of our deals. We've also seen the financial buyer, the strategic buyer come in and buy companies because they just wanted to own it. For example, recently a ski rack manufacturer bought a rooftop tent manufacturer and the ski rack manufacturer was 100 times bigger. Certainly could have reversed engineered these tents, but they wanted the people, the skill set and they wanted their customer base and the great news about strategic buyers. They're usually less worried about the multiple of earnings and they're more worried about buying a great company. So if you're not sure what type of buyer you are, just go through it and figure out you know which one fits best. And if you have questions on this or anything even similar to it, just give us a call at Freedom Factory and please hit like and subscribe.
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